Interest rates improved to 1.5 week lows after October’s employment report was released on Friday. Non Farm Payroll jobs increased 214,000 in October but were lower than expectations of 235,000 plus. The Mortgage Backed Security (MBS) market closed up + 46 bps on Friday alone – taking back the losses from earlier in the week and closing the week positive + 25 bps.

On Monday the bond market pulled back taking some of the gains from Friday – closing down -31 bps on the Day. The bond Market is closed for Veterans day. Thank you to all the Veterans out there that have served our country.

Interest rates are very similar to where they started last week. Retail sales will be the biggest report of the week on Friday.

With Fannie Mae’s new version of their underwriting system DU – mortgage bankers and their clients are seeing a welcome change in the return of the PIW

PIW stands for Property Inspection Waiver.

When running a Fannie Mae Approval – sometimes Fannie Mae’s system grants a PIW which allows us to complete the loan without getting an actual appraisal. These No appraisal refinances are not for upside down homes, lower credit borrowers, cash out loans, etc. They are typically granted when there is a decent amount of equity based on average prices in the area and they are usually granted for higher credit score borrowers.

The purpose is to allow someone that has equity and great credit to get a loan without having to physically get an appraisal.

This is a welcome return – as it allows well qualified customers to complete a refinance without an out pocket expense and we can usually close the loan very quickly.

We are still trading in a narrow range where the market usually doesn’t go above or below it’s moving average. When the bond market does pass a certain range – that is when you can see a lot of movement in interest rates. Until then, the rate range is somewhat secure with rates staying within a .125% window.

The end of this week will likely be very volatile with a smaller amount of traders due to early vacations. On Wednesday the ADP Private Payroll will be released, and on Thursday – the most important statistic in the US economy – the Non Farm Payroll report will be released. These reports usually create a lot of market movement anyways. When you add in a small amount of traders – the market could move quickly in a very short period of time.

Interest rates improved or stayed the same every day last week. The Mortgage Backed Security (MBS) market closed the week trading up + 58 bps.

The primary reason for interest rate improvement is renewed concerns regarding Ukraine/Russia and a slumping stock market. The week before last, rates went up due to reports of a peace agreement between Ukraine and Russia. Last week, the exact opposite happened. It’s fair to say that continued developments in the Ukraine/Russia conflict are having a major effect on interest rate pricing and will likely continue to do so until the conflict is over.

This week, the FED will be releasing a statement on Wednesday after their meetings. It is expected that the FED will taper their bond purchasing program another 10 billion at the meeting.

Because of further tapering, I think that interest rates will trend higher after Wednesday this week unless there is a major breakthrough in peace talks between Russia and Ukraine.

The big news last week was the FED announced another taper to their bond purchasing program of 10 billion. This move was expected with Janet Yellen’s congressional testimony that the FED would continue to taper and likely end their quantitative easing by the end of 2014.

As expected, rates moved sharply higher on Wednesday with the MBS market trading down – 80 bps on the day. My update last week said to lock before Wednesday and that prediction proved true. Luckily rates have recovered some since Wednesday – with positive MBS gains for the past 3 business days.

Currently 30 year fixed rates only went up approximately .4 pts on the price. 30 Year Fixed Loans for a well qualified borrower at 4.25% cost .91 points today. 15 Year Fixed rates went up from 3.25% to 3.375% costing .50 points today. 5/1 ARMs are still available below 3% for less than a point.

All pricing quoted still includes my limited time March Rate Lock Special which improves pricing on:

I hope everyone had a nice Valentine’s day and the day off for President’s day.

After steadily improving for most of 2014, mortgage interest rates finally moved higher last week. The Mortgage Backed Security (MBS) market finished the week trading down -54 basis points, pushing 30 year fixed conforming rates to 4.375% costing .83 points at the end of the day on February 14th, 2014. 15 Year Fixed conforming rates did not move as much, but finished Friday at 3.375% costing .7 points.

Janet Yellen’s (the new FED Cheif) testimony last week made it very clear the FEDs outlook on the economy and Quantitative Easing moving forward. Yellen was enthusiastic about increased growth in the US economy in 2014, and mentioned that the slower growth in 2014 thus far could be a factor of the bad weather that has hurt the economy on the East coast – where a large share of the economy lives and works.

She also stated that the FED would continue to taper the stimulus QE3 and that they should be out of the market completely by the end of 2014. This is big news and likely means the FED will taper at every meeting this year until there is no more to taper. With the FED getting out of the mortgage business – the long term interest rate outlook remains one of increasing interest rates. Remember, the FED getting into the MBS market pushed rates to their historically low levels 3 years ago. With the FED getting out of the MBS market, interest rates should continue to go up.

Interest rates continued their hot streak ahead of the FED statement on Wednesday. Mortgage interest rates pushed to new lows in 2014 with the stock markets having a big sell off and investors transferring money into safer investments.

This improvement in rates could be temporary depending on if the stock markets bounce back. I would strongly recommend locking as these are the lowest rates I have seen in close to 2 months.

The Federal Open Market Committee (FOMC) will release a statement on Wednesday that will likely have a major impact on rate pricing. Experts are still torn on whether the FED will keep current bond purchasing levels or reduce them another 10 million.

If the FED reduces its bond purchasing again, expect to see rates bounce back higher.

As many have heard by now – The FEDERAL RESERVE BOARD finally decided to taper their bond purchasing program – capping months of speculation on when the move would take place. The FED will reduce it’s bond purchasing by 10 million per month. This relatively small taper as well as the market already taking into account that a taper would happen helped rates not go through the roof. Still mortgage interest rates are much higher than most have become accustomed to and will head higher in 2014.

GSE FEE INCREASE IN 2014:

Along with more tapering likely coming from the FEDERAL RESERVE BOARD in 2014, the GSEs FANNIE MAE and FREDDIE MAC announced fee changes to lenders last week.

These fee changes will raise the rate for most borrowers .125% – .375% once they hit lender rate sheets. After announcing the Fee change, FHFA director Mel Watt pulled back the implementation, announcing a delay in the fee change until he is able to further determine if this plan of action is the best way to move forward.

So at this point, the fee changes which raises the fees FANNIE MAE and FREDDIE MAC charge lenders to buy their loans is delayed after most expected these changes to hit lender rate sheets in January 2014.

If/when these changes going into effect – they will dramatically raise rate/borrower costs for most borrowers. Loan level pricing adjustments are certain characteristics of a customer’s loan that cause the loan to be more expensive. Some of the changes announced:

– Highest qualifying credit score will now be 800, currently any borrower with a 740+ credit score will get best mortgage pricing – Cash out loans will increase in rate/costs – Lower credit score borrowers will increase in rate/costs – Investment property loans will increase in rate/costs

Below is a chart of the proposed loan level pricing adjustment for Fannie Mae and Freddie Mac in 2014. Below is also a great article explaining the Fee changes:

All eyes are on the FED and The FOMC meeting this week. The FOMC starts their meeting on Tuesday and will release their statement at 2 pm Eastern on Wednesday.

There is more and more speculation that the FED could taper at this meeting – many experts now calling it a 50/50 proposition. Some prognosticators are actually predicting the FED to taper like the opinion below:

“We now look for the Fed to do something meaningful at the December 18 meeting,” wrote Michael Moran at Daiwa Capital Markets America in a note. “We view the announcement of a reduction in asset purchases as the most likely outcome; absent this, we expect some type guidance on the FOMC’s plans for the effort.”

If the FED tapers, the markets will also be looking at how much they will pull back on their bond purchasing budget. Any sort of taper will likely mean a large rise in rates.

With interest rates at around 4 month highs – I am still suggesting locking before the meeting. If rates drop significantly after the announcement (unlikely) – rate float downs are available when rates drop .25% with the same costs.

The interest rate market had quite the week last week. Rates rose everyday from Monday through Thursday before the important November employment report. Then something weird happened.

Job creation beat their forecasts, The unemployment rate dropped .2% – this would usually cause rates to rise fast, but it didn’t. Rates actually improved a little bit on Friday and also on Monday. Still, the Mortgage Backed Security Market closed the week trading down – 69 bps, pushing rates to their highest levels in months.

With the majority of economic reports showing positive gains – more and more experts think the FED could taper their stimulus package in their meeting next week. I don’t expect rates to change much until then.

Rates are still taking on the outlook I have talked about for months – rates really have no where to go but higher. Any improvement we see is not substantial because the FED taper is looming.

Those still waiting for rates to dramatically drop will likely be waiting forever. I recommend locking on a refinance if it’s beneficial as even these higher rates likely won’t be around much longer.

BEST VALUE OF THE WEEK:

15 Year Fixed at 3.5% with 0 points 10 Year Fixed at 3.25% with 0 points